|Michael Noonan, minister for finance, with CDs of Budget 2013 at Government Buildings today|
Irish Budget 2013: The reactions to tax, property
and pensions measures in today's Budget from industry and professional groups.
The introduction of a property tax holiday until 2016 for first time buyers
and those who purchase new or unoccupied homes is welcome but it won’t have a
positive impact on the residential property sector, according to the
Construction Industry Federation (CIF). According to the CIF the measure
removes a hurdle from people interesting in entering the residential market for
the first time, but it will not have a measurable effect on the industry at
“We are glad that the Government has made some adjustment to the property tax
and put in place a measure that will ease the way for people who are considering
entering the residential market,” said CIF director general Tom Parlon.
“However the reality is that if the Government is interested in getting the
residential property market moving in a positive direction this won’t make a
“If the Government wants to see positive movement in the residential market
then they need to address more of the underlying issues. They need to ensure the
banks are providing mortgages to people who are applying and can afford a
mortgage payment. They need to help breed confidence in the market so that we
can see a more steady position in residential property prices.
“There also have to be measures introduced that will recognise the distinct
difference between the various markets that are in place around the country. The
residential markets in Dublin, Cork and Galway are recovering quicker than in
the more rural parts of the country. This trend is being replicated in other
urban areas too. The Government’s residential property market strategy needs to
take this reality into account if we are to see the market recover on a
sustained basis,” Parlon concluded.
Property Industry Ireland (PII) acknowledges that Budget 2013 contains
some positive measures for the sector and, most importantly, brings certainty to
areas such as the level of the local property tax and the treatment of rental
Finola McDonnell, director, Property Industry Ireland (PII), said: "While
PII argued strongly that the property tax should be payable by occupants rather
than property owners, the rates applying at 0.18% and 0.25% of market value for
properties worth less than €1m and over €1m respectively should not dampen
transaction levels considerably in coming months.
PII welcomes the exemption from property tax of those purchasing new or
previously unoccupied stock up to end 2016. However this will not counteract to
any major extent the ending of mortgage interest relief.
Most welcome is Minister Noonan's commitment to provide for the establishment in
Ireland of Real Estate Investment Trusts (REITs), a widely used funding
mechanism for property investment. PII has argued strongly that REITs would
attract international investment into Irish property at a time when it is most
needed and signal the internationalisation of the sector to significant
The main challenge posed for property by this Budget is the extension of PRSI to
unearned income, including rental income, from 2014. This will deter investors
in the buy-to-let market and, in conjunction with the property tax, increase the
costs to landlords significantly."
Lisney chartered surveyors made a number of observations on Budget 2013.
In particular, Lisney is critical of the basis of taxation adopted in relation
to the residential property tax. They acknowledge the difficult position the
Government is in and accept that an annual property tax must be introduced.
However, they disagree with the value approach adopted. In particular, Lisney
believe that it is wrong not to take into consideration those who paid large
amounts of stamp duty in the past, not to zero rate stamp duty (or at least make
it a nominal €100 charge), and not to make the occupier of the property liable
(rather than the landlord).
According to James Nugent, managing director of Lisney, “Lisney has
always been generally supportive of a recurrent property tax but for this to be
put in place, other considerations must be made. We believe that it is a mistake
and totally unfair to have a system based only on the value of a property with
no other considerations.
Based just on value, homeowners in large urban areas, particularly Dublin, will
have to pay considerably more than those in the rest of the country. This is
unfair given that homeowners in Dublin cost their local authority less (per
residential unit) because providing mass services is more economical than
providing facilities and amenities over a wider and scattered geographical area.
Historically, Dublin homeowners paid the highest prices for their property and
consequently the largest stamp duty. In addition, Dublin homeowners have the
biggest mortgages and sadly the highest levels of negative equity. According to
the ESRI, a tax based just on value will mean that the share of tax Dublin will
have to bear will be proportionately higher than Dublin’s share of the
population and its share of income and income tax.
We believe that it makes much more sense to have a system that combines both
value and size (i.e. the liability is adjusted depending on the size of the
property) or a site value tax so that those in higher value but smaller homes in
urban areas are not overly penalised. In relation to the former, we have done a
lot of work on this type of system that is more balanced, the details of which
are available on
our web site .
In addition, it seems illogical not to make allowances for people who paid
massive amounts in stamp duty over the past decade. Most homeowners have paid
tens of thousands of euro in property tax in the recent past and they should get
the present value of this money deducted from their liability over the next
couple of years. In addition, it is also regrettable that means tested deferrals
have not been put in place for the elderly.
With investment property, it is very unfortunate that landlords will be hit with
yet another tax. In the last few years, they have had to contend with the NPPR
€200 charge, increased rates for complying with the PRTB, 75% limit on mortgage
interest relief and rental income being subject to PRSI from 2013. We are firmly
of the view that occupiers should pay as is the case in the UK (called council
tax) and with the Irish commercial rates system. This tax, combined with rental
income falling into the PRSI net from next year will push many landlords into
further distress and will led to repossessions. This will further deplete an
already inadequate stock of rental accommodation, particularly in cities. Given
the Government’s clear desire to continue to seek FDI, this could be a
particular problem for international worker who generally prefer to rent, and
could led to international companies choosing alternative European locations.
In relation to the NPPR change it is positive that this will be abolished from
2014, however we believe this should have been abolished immediately as it will
act as double taxation in the second half of 2013.
On a positive note, it is good that the upper 0.25% rate is only applicable on
the balance above €1m rather than on the full value of the property. However, we
believe this €1m threshold should be increased to at least €2m. It is also
welcome that certainty is provided to homeowners for the next three and a half
years and the value base will be fixed until 2016 as will the rates.
Given that mortgage interest relief was not extended, it is helpful that first
time buyers will be exempt from the property tax for four years if they buy in
2013. It is also beneficial for the property market generally, and in getting a
resolution to unfinished estates / vacant units, that units not previously
occupied will be exempt from the tax until 2016 for any purchaser of these
properties. However, with both of these measures, we believe that it would have
been better to extend the exemption to all purchasers of all types of
properties. In our view, the needs of the developers (who own new units) does
not outweigh the needs of the distressed investors or owner-occupiers (who own
second-hand units), and similarly, mover purchaser and investors should be
treated the same as first time buyers.
In relation to the commercial sector of the market, Lisney welcomes the
introduction of Real Estate Investment Trusts (REIT’s). REIT’s are publically
traded property companies, where the majority of the assets of the company are
income producing real estate assets. This will provide liquidity to the market
and will allow investors participate in areas of the property market that they
would not traditionally have had the opportunity to enter, i.e. it will allow
them invest small sums of money in large-scale commercial properties. Given the
relatively small size of the Irish market, it is likely that there will only be
a limited number of REIT’s established, perhaps two or three. It is positive
that this is being introduced at a time when property values are low. This is
contrary to the situation in UK when they were introduced at the height of the
market in 2007 and suffered large losses within a short period of time due to
the falls in property values. REIT’s are also positive from the point of view
that they will provide a new source of funding for property companies. A return
of a listed property sector is to be welcomed, the added benefit of no taxation
at company level is good news for the investor.”
The Government’s widely anticipated decision to introduce a cap of €60,000
on the annual pension that can be provided from approved pension arrangements
will have implications for over 27,000 employees from 2014. The penalty for
exceeding the cap is a 41% charge on the excess value, on top of paying income
and USC on pension, giving a net effective tax rate of nearly 70%.
Employees who might be affected by the lower cap in the future are going to have
to plan their pension saving more carefully. Michael Madden, partner, Mercer
said “the need for members to manage the right combination of pension and
savings over time – throughout their working lives, into retirement and beyond –
has never been more important. Employers who demonstrate flexibility and can
deliver solutions which are tax and cost neutral will have created a significant
retention tool for employees”.
This measure is also likely be a deterrent to highly paid executives working on
global assignments within the multi national sector choosing to work here.
Senior public servants are heavily impacted by the pensions cap and are unlikely
to have the flexibility that employees in the private sector may have. Senior
public servants may have to use up to half of their tax-free lump sum on
retirement to pay any excess tax due to the pensions cap.
Confirmation that full tax relief on pension contributions will continue to be
provided will come as a relief to all pension savers and will help to ensure
people will continue to provide for their retirement. The announcement that 30%
of Additional Voluntary Contributions (AVCs) can be accessed is a positive
development that will assist individuals with immediate financial difficulties.
In addition, this measure will also be used as a planning tool by individuals
who will reach the €60k cap. It will also get much needed funds into the
Since 2005 there have been ongoing changes to pensions by Government. Today’s
confirmation that the pension levy will stop in 2014 provides much needed
The lead in time of a year for the introduction of the €60k pensions cap is to
be welcomed. In terms of implementation it is essential that the pensions cap
should be increased in line with an earnings index in the future. This was
provided for when the original cap of €5m was introduced in 2005 and was applied
for a few years before the cap was reduced to €2.3m, but there has been no
indexation of the cap since. A crucial detail will be the multiplier used to
decide what fund a member of a defined contribution scheme or a self employed
person can have. For example a multiplier of 20 would allow a fund of €1.2
million which is well below the actual cost of purchasing a pension of €60,000.
Ernst & Young
Jarlath O’Keefe, partner Indirect Tax Services comments on Excise Duty
"The increase in the excise duty rate on tobacco will add 10 cent to the price
of a packet of cigarettes, which will be welcomed by health lobby groups. It may
have pushed for a more significant increase, but the Minister pointed out that
this could result in a greater number of consumers purchasing cigarettes on the
black market, thus reducing the overall tax take."
"Publicans will have balked at the increase in the excise duty on alcohol
products and will likely argue that a 10 cent increase on a pint of beer allied
to a 10 cent rise on a measure of spirits will impact on their efforts to
maintain current job levels in the sector."
Jarlath O’Keefe, partner Indirect Tax Services comments on Reduction of VAT
“Introducing a reduction in the rate of VAT on construction services could have
stimulated activity in the labour intensive home improvement sector. This, in
tandem with an investment programme designed to tackle broadband or
energy-related infrastructure projects could have led to the creation of
long-term sustainable employment in this sector. As it stands, the share of
construction employment in Ireland is below the pre-boom average of 7.5%."
Ian Collins, director, R&D Tax Services comments on doubling R&D relief
"Doubling the first €100,000 eligibility for Research and Development (R&D)
relief can be viewed as a positive move designed to increase innovation and
expansion, particularly amongst small and medium-sized enterprises (SMEs).
However, it is unfortunate that the Minister did not look to improve the Irish
regime by increasing the flexibility of the employee incentive scheme and making
alterations to the regime for sub-contracted activity.
There is a danger that the small changes proposed will do little to improve
Irish competiveness as our international competitors make far more significant
enhancements to theirs."
John Heffernan, tax partner, Ernst & Young comments on comments on
“Middle income householders will feel the bite of the property tax more sharply
than the Minister indicated. The half-year charge on a property in the
€150,000-200,000 band will amount to €157, rising to €315 once the tax is
applied for a full year in 2013. Properties in the €300,000-350,000 band will
face a full-year charge of €585. Opting for a site value tax would have resulted
in a lower charge of around €200 per annum for the majority of homeowners".
“While the local property tax was signalled in advance, the fact that local
authorities have the right to vary the charge by up to 15% in either direction
from 2015 come as something of a surprise".
“The exemption from the new local property tax will be applied on any new or
previously unoccupied property from 2016. Any first-time buyers of any home,
either new or second-hand, will also qualify for this exemption. These measures,
coupled with the voluntary deferral position for those with low disposable
incomes will reduce the yield from the new tax.”
John Heffernan, tax partner, Ernst & Young comments on comments on Real
Estate Investment Trust (REIT's)
“The introduction of Real Estate Investment Trusts (REITs) allied with €2billion
of NAMA vendor finance is an extremely positive development and will help
underpin the recovery of the Irish commercial real estate market. The country
has previously been disadvantaged when attempting to attract foreign investment
in real estate as investment in the sector, via REITs, was not facilitated as
was the case in other economies including the US, UK, France and Germany.”
"While the full details of the Minister’s proposals for an Irish REIT have
not yet been published, it is hoped that an Irish REIT will have the following
- A REIT should be fully transparent for tax purposes so that the REIT
will not have any exposure to Irish Corporation on income and capital gains;
- A REIT should attract experienced fund managers with global reputations
to set up REITs for Irish real estate investment thereby opening up the
Irish market to foreign investment in a way that hasn’t;
- The regulatory requirements should be fair and reasonable and in line
with those applicable in other developed jurisdictions;
- An Irish REIT should be allowed raise funds in a number of ways
including direct equity investment from investors together with access to
- he minimum investment size for the establishment of an Irish REIT should
take account of the scale of the Irish market.
- There should be a trading market for shares or units in an Irish REIT so
that investors can have a degree of liquidity for their investment".
John Heffernan, tax partner, Ernst & Young comments on comments on CGT and
“The immediate increase in the rate of Capital Gains Tax ("CGT") and Gift
Inheritance Tax from 30 to 33% was one of the Budget’s few surprises. By
contrast, the rate of CGT in the US currently sits at between 0 and 20% for
long-term capital gains while the UK offers a low rate of 10% for entrepreneurs,
meaning today’s announcement has the potential to hinder genuine economic
John Heffernan, tax partner, Ernst & Young comments on the Ministers reference
to funding available from Nama
"The Minister also referred to the funding available from NAMA. NAMA is already
making €2 billion of funding available over the next four years to complete
residential and commercial projects in Ireland. The Minister confirmed that this
investment is already underway with some €650 million of advances already
approved and is expected to create significant employment in the region of
25,000 jobs in the construction sector and additional jobs in the wider economy.
The Minister also announced that NAMA is making €2 billion of vendor finance
available to perspective purchasers of commercial properties over the same
While the Minister has not made any projection for the level of investment that
might be attracted into Irish real estate, given the level of vendor finance
that NAMA is prepared to make available together with the opportunity to
introduce new foreign investors to the Irish market via REITs, there are
reasonable grounds for optimism for a recovery in the Irish commercial real
Kevin McLoughlin, partner and head of
tax, Ernst & Young comments on budget 2013
“Signalling future tax-raising measures (2013 and 2014) brings an element of
predictability during a period of uncertainty, presumably with the aim of
encouraging spending and investment.
“Unfortunately, compared to last year’s Budget, there was no explicit comment on
how the Government will maintain and continue to attract international business
to Ireland by enhancing its tax competitiveness. That would suggest that the
assumption is that the current 12.5% rate is sufficient to maintain and attract
foreign direct investment to support a growing export economy.
“In fact, competition on the tax front internationally is particularly acute at
present and it is disappointing that the Minister did not commit to enhancements
that ensure the country remains a primary location for companies considering
“Excise duties on fuel and carbon taxes on energy have represented a significant
increase on costs to companies in recent years, so today’s freeze will be widely
welcomed by the business community.”
The Minister for Finance has announced today the introduction of legislation
to allow for the establishment of Real Estate Investment Trusts (REITS).
The proposal is welcomed as such vehicles are internationally recognised and
should facilitate investment from non-resident institutional, private equity and
pension groups in Irish commercial property. REITs are an established vehicle in
the likes of the UK and the US.
Commenting, Padraic Whelan, head of Real Estate & Infrastructure,
Deloitte, said: “It has been an open secret that dozens of potential
investors are sitting on the sidelines waiting to pounce on Irish property
assets. These measures on REITS proposed today will bring Ireland into line with
international standards. It will make it easier for those investors who wish to
buy into a portfolio of properties to do so and should help stimulate a recovery
in the commercial property market.”
In a welcome development, the Minister has confirmed that tax relief on
individual pension contributions for those who are attempting to provide for a
pension of up to €60,000pa, will remain in place at the marginal rate. This is
fundamentally important as further curtailment in tax relief on pension savings
would undermine the rationale and necessary trust in the wider retirement
The widely anticipated quid pro quo for this will be the reduction in an
individual’s ability to build up larger pension pots within a tax effective
structure. The Minister announced that arrangements would be made to modify the
current Standard Fund Threshold (SFT) of €2.3 million in a manner to implement a
€60,000 tax effective cap on pensions, with effect from 1st January 2014.
Commenting, Patrick Cosgrave, director of Pensions, Deloitte, said: “In
overall terms, the changes are probably the least bad outcome from what had been
signalled as being a tough budget for pensions and there may be a collective
sigh of relief. There has also been an attempt to apply some level of balance
between those who already are benefitting from large pensions and the working
population who are in the process of trying to build up their own pension
provision in challenging times. Particularly important was the statement that
the Pension Levy will not be extended beyond 2014 and, most importantly, that
the fiscal incentives that support retirement saving remain in place for the
vast majority of the working population.”
The reduction in tax effective pension pots will affect higher earning
self-employed, private sector employees and senior civil servants. These will
now have to reconsider their pension planning. Those with larger accrued
pensions will be most immediately impacted, but many others may be affected over
the longer term if this cap is not indexed.
A surprise temporary measure that the Minister introduced today is the
ability for individuals who have built up pension funds through Additional
Voluntary Contributions (AVCs) to have early access.. Whilst not fundamentally
changing the pension landscape, this limited measure may be of value to those
who have accumulated significant AVCs in the past and need access to additional
Following the controversy around large bank pensions in the run up to the
budget, it is unsurprising that Minister Noonan has increased the 4% USC rate
applicable for those over age 70, to 7% if their income is in excess of
€60,000pa. However, this measure will have no immediate effect on many of the
former bankers subject to recent commentary as they already pay USC at the rate
of 7% due to being under age 70.
Danske Bank Markets
Commenting, Owen Callan, Senior Fixed
Income Strategist at Danske Bank Markets said: “While
Budget 2013 encompasses reductions equivalent to 2.1% of GDP, the reality is
that it is far smaller in scale than previous years. The Irish Government has to
date implemented severe rebalancing, equivalent to €25.3 billion in combined
fiscal adjustments or approximately 15.5% of GDP. This is the biggest adjustment
in the Eurozone, with the exception of Greece. That there has not been a total
collapse in economic activity during this period is testament to the strength
and flexibility inherent within the Irish economy.
Overall, the markets should be impressed to see the Irish Government remaining
so firmly committed to the Troika programme, continuing to adopt measures, that
while politically divisive and socially unpopular, many other countries have
thus far refused to countenance.”
Retail Ireland director Stephen Lynam
said: "Today's Budget is unlikely to entice consumers
back into stores. The increase in alcohol excise may drive consumers north of
the border again as the price of beer, wine and spirits rises. The increase in
tobacco excise, although smaller than last year's, will only further encourage
criminal elements to supply illicit cigarettes on the black market. The decision
to freeze VAT is welcome as is the decision to freeze excise duty on fuel.
Retail Ireland chairman and Topaz Energy retail director Frank Gleeson said:
"As a practicing retailer, I know how difficult things on the ground are for
shop owners. The fuel rebate for hauliers is very welcome, as is the decision to
allow for the early release of a portion of Additional Voluntary Contributions
(AVCs) for private pensions. This could help stimulate the domestic economy and
is an issue Retail Ireland has campaigned on this year.
"I am also delighted to hear from Minister Howlin that this may be the final
year that the Budget will be announced just as the Christmas shopping season
starts. Consumers need clarity much earlier in the year to plan their spending.
Ministers should resolve to hold next year's Budget well in advance of
IBEC said taking a significant amount of money
out of the economy will have a negative impact on economic activity, but the
decision not to significantly increase employment costs was sensible. The group
welcomed specific new measures designed to tackle unemployment, increase lending
to SMEs and allow for early access to AVC pension contributions.
IBEC director general Danny McCoy said: "Broadening the tax base and
focusing on cutting expenditure means that the direct impact on jobs has been
minimised. However, abolishing the employer redundancy rebate will make it more
difficult for companies to make the changes needed to stay afloat and
restructure. The decision not to introduce a statutory sick pay scheme is
welcome, as it would have pushed struggling firms out of business and cost jobs.
IBEC welcomed the specific measures designed to tackle unemployment, the new SME
tax reform plan and investment fund, and more streamlined supports to help
businesses take on new staff. The move to allow early access to AVC pension
contributions, which IBEC proposed, will put more money into the economy and
help support domestic demand.
"The last year has seen Irish economic fortunes improve and 85% of the planned
fiscal adjust has now taken place. If we can get growth back into the economy,
future budgets will be a lot easier," concluded McCoy.
In his budget speech today, Minister Michael
Noonan confirmed an overhaul of the road tax regime. The number of CO2 bands
which determine the rate of road tax for a vehicle has been increased from
seven to twelve.
Commenting on the changes Motorcheck.ie co-founder Shane Teskey said
"Given the relatively small increase applied to the less polluting cars I
believe we can now expect car manufacturers to work even harder at bringing
their key models in at lower CO2 rates. Today's market has just over X% of
the range under 120g/km - a figure which will likely increase following the
Band A which is the most popular tax band in Ireland and accounts for 53% of
total sales this year has been split into five sub-divisions meaning the
rate of tax will increase from €10 to €40 depending on the CO2 output of the
Band B, the second most popular band accounting for 38% of sales has been
split into two sub-divisions. The increase here will be either €45 or €55
per annum again depending on the CO2 rate of your car.
||New Tax Rate
||1 - 80
||81 - 100
||101 - 110
||111 - 120
||121 - 130
||131 - 140
||141 - 155
||156 - 170
||171 - 190
||191 - 225
HOW THE CURRENT MARKET LOOKS
Today there are 3,810 new cars available in the Irish
market. The table below demonstrates the number of cars available in each